Monday, February 27, 2012

CMBS Delinquencies and Bank Troubled Assets Holding Steady, Report Guests on Atlanta’s Commercial Real Estate Show

ATLANTA, GA (Feb. 27, 2012) – When it comes to CMBS loan delinquencies and the percentage of problem assets that banks have on their balance sheets, things are not getting better. But the situation is not getting worse.

Guests of the most recent episode of the “Commercial Real Estate Show” shared those observations in a comprehensive look at the issues facing banks and servicers. Topics included upcoming CMBS maturities, the performance of banks in 2011, best practices for participation loans and successful OREO marketing techniques.

Tom Fink (top right photo), a senior vice president of Trepp LLC, said the volume of CMBS delinquencies are “in a steady state right now. I wouldn’t call it greatly improving, but it’s not getting worse, that’s for sure.”

However, some of the numbers are still unsettling. Approximately $60 billion of CMBS loans are set to mature in 2012 – and about half of those are upside down, Fink said.

CMBS default rates have been improving in the multifamily and hotel sector, but deteriorating among office and retail properties, Fink noted.

Meanwhile, more than 90percent of U.S. banks turned a profit in 2011, up from approximately 60 percent just two years earlier, said Christopher Marinac (top left photo), managing principal and director of research for FIG Partners LLC. “As the cigarette commercial goes, we like to say, ‘We’ve come a long way, baby,’” he said.

The median level of problem assets among banks is about 6 percent, but the measurement is holding steady, Marinac noted. “It may not necessarily get better in the near-term … but it’s not getting worse. That’s real important,” he said, adding banks “are much more stable and much stronger than people give us credit for.”

Banks are lending more and have shown interest in hotels, multifamily properties and retail sites that are characterized by healthy cash flows and reasonable leases, Marinac said.

“That’s good,” replied show host Michael Bull (middle right photo), president and founder of Bull Realty. “Fundamentals are improving slightly for commercial real estate. New loans at the current lowvales may be some of the safest loans lenders will ever originate.”

Lenders that handle theforeclosure of a property well are the ones that make sure their various departments communicate early and often once trouble rears its head, said Rob Whitmire (lower left photo), a partner with Bull Realty. “They’ll bring their advisors in, their brokers, their leasing team, their management team and have them start early on providing expectations for disposition value,” he said.

A successful tactic for foreclosing on an OREO property is to have the property held by a special-purpose entity rather than a bank. That way, the asset “has far less liability issues,” said Robert Reynolds, an attorney with Reynolds, Reynolds & Little.

The next “Commercial Real Estate Show” will be available March 1 and will examine land use and zoning issues.